Perhaps my biggest issue is that I don't fully understand how to classify the relationship I have with my mother-in-law. Is she my employee, or is she self-employed and providing me with a service from her "business"?
If your mother-in-law is not in the business of providing child care service - she is considered your employee.
My mother-in-law is my wife's parent, and only one condition of the exception is met (condition a). Condition b is not met, since I am still married to my wife and neither me nor my wife has any physical or mental condition. So according to this, I am not to count the wages I pay to my mother-in-law as social security or Medicare wages. Does this mean that I am not required to, or that I shouldn't? Could I withhold Social Security and Medicare if my mother-in-law wanted to be eligible for these benefits? Or is she not eligible as long as she only works for me? If I can't withhold SS and MC for her, could she pay these taxes herself in order to become eligible (as if she is self-employed)? If so, then how?
As long as the exemption you mentioned doesn't apply to your situation - wages you pay to your mother-in-law are not subject of FICA and FUTA and SUTA tax - that is not your choice - you do not need and you should not neither pay nor withhold FICA taxes.
FUTA tax are paid by an employer - not by an employee. Wages you pay to your mother-in-law is not a subject of FUTA or SUTA tax.
You still should issue W-2 form for your mother-in-law and put zeros in boxes 3 and 5.
You may - however count waged paid to your mother-in-law as child care expenses and may claim a credit for that.
That income is taxable as wages for your mother-in-law.and generally should be reported on her individual tax return.
BotXXXXX XXXXXne - I need to know what I am supposed to do and what my mother-in-law is supposed to do. My mother-in-law wants to be eligible for SS, MC, and unemployment if possible. It sounds like I don't have to withhold anything from her paycheck, but I would like to if it would make her eligible for SS, MC, and unemployment. It sounds like my mother-in-law doesn't have to do anything until she files her first tax return, but then must make estimated tax payments to the IRS since I am not withholding anything. It sounds like I need to prepare for her a W2. I'm hoping that you can help me nail down exactly what I am required to do, what my mother-in-law is required to do, and what either of us might do in order to make her eligible for benefits, if possible.
There is no way for your mother-in-law to be eligible for unemployment unless she will find a job outside your home.
She may not earned social security credits working as a household employee in your home.
To earn social security credits - she need to work at least 10 years as self-employed of have a regular job outside your home.
To be eligible for Medicaid - she need to become a US citizen, or to have 40 credits, and to be 65 years.